Sunday, August 30, 2015

Eric Sprott believes that we’re still living in the times of inflation.

Source: ChapwoodIndex.com

Eric showed the above table in his presentation. It shows that the true level of inflation, a persistent increase in prices, has been sitting around 10% since 2011. Indeed, a far worse picture than what the US Federal Reserve paints. The Fed argues that prices have been rising below 2% for the past four years. That said, the Fed doesn’t include food, petrol and taxes in its inflation index. This is similar to the Reserve Bank of Australia’s inflation calculation.

But then who needs petrol and food, right?

So it’s not surprising that Jim Rickard’s, over at Strategic Intelligence, argues that there’s no worse forecaster in the world than the US Fed.

You may have noticed each year that Australian healthcare companies raise their premiums by roughly 6%. Well, costs are also rising over in the US.

I’ve been speaking to many US citizens up here at the conference. The word on the street is that Obamacare is one of the worst policies of all time. It’s legally forced those who can’t afford health care to buy; at the same time, hiking insurance premiums for those who require modest healthcare.

And it’s only going to get worse…

Now, after two years of being relatively stable, premiums are going to skyrocket. New Mexico, for example, is about to see a 51.6% jump in costs next year. No doubt this will squeeze the US economy even more.

So Eric Sprott is correct…yet again. The general level of prices across the economy has been increasing. You’ve probably noticed the same thing here in Australia — food, healthcare, education, etc. — It’s all going up!

Tuesday, August 25, 2015

I’ve always believed you should own gold and it has played out very well since I got involved back in 2000. It has been spectacular, quite frankly.

Of course it has been a very, very tough game for the last four years here. In my own account, I continue to invest in gold and silver companies. I recently bought a mine in the United States personally. I just took on 40% of another mine here in Canada.

So I’m a believer. I look at the physical supply and demand of gold -- and silver for that matter, where we are experiencing some shortages here.

The demand numbers I’ve seen are way beyond the supply. I think that Western central banks surreptitiously make up the missing supply and that someday they’re going to look in the cupboard and realize that it’s bare.

So far, everyone in the press is downplaying gold but I haven’t lost any conviction whatsoever.

To your bigger question, how do you survive in a recession or a depression?

You have got to take matters into your own hands. Make sure you have essentials and the things you need to get you through. It could fall apart pretty seriously all of a sudden – just like we experienced in ‘08 where there was almost a zero credit available at one time.

That is just as likely to happen this time and it’s hard to transact in an environment like that. So you had better be prepared. Have some ‘good’ currency -- gold and silver.

Thursday, August 20, 2015

It’s similar to what we’ve seen in Japan, where there really is no recovery. We see it happening in the States where there’s no recovery. The only hint of a recovery is coming from the fact that you took rates to zero. You let the marginal buyer buy a home. You let the marginal buyer buy a car. Those slight gains, which are often at very low levels, have kept the economy bumbling along here.

But as you know, there are lots of signs that the economy is not strong. Retail sales were down 0.3 percent for the month of June.1

The middle class is getting pillaged because inflation is way higher than the wage gains they have seen. Therefore, there’s no extra money for discretionary spending, even in the US.

Europe looks like it has failed the Greek situation here.

And we even have a situation in China now where the monetary authorities were perhaps too lax and now they are paying the price.

The population bought into the stock mania and now they are getting their hats handed to them too.

The theory that central planners can alter events on a sustained basis is fundamentally wrong. We saw the central planners fail in the USSR. We see them failing in Japan. We see them failing in the ECB. We see them failing in the US.

I think it all shows that fiat currency -- and more importantly debt creation -- can sustain an economy for a while. But once you have to start paying back the debt and you can’t take on increasing amounts of credit, then your GDP goes down because people don’t have the spending power.

That’s essentially where we are now. Countries, central banks, and people really can’t take on more debts. Therefore, you’re likely to see a contraction in economies as that extra spending from debt vanishes from the scene.

Saturday, August 15, 2015

Well, of course the fundamental problem, which was very much expressed by Mr. Varoufakis, is that Greece is broke.

He said it probably three months ago now. The fact is that they are broke and have around 25 percent unemployment.

They’ve been undergoing a recession for five years. So how do you expect somebody who’s broke to pay up? Normally, when someone is broke, they go through a chapter 11 bankruptcy or something in order to get out from under debt.

So I think it’s going to be an ongoing crisis. It will be interesting to see how it plays out in the banking system. But of course it’s the banking system that the powers-that-be want to preserve. That’s because the banking system can create a domino effect where all of a sudden everyone is questioning everyone else’s credit. Also, writing down a debt would be bad because that debt is on people’s balance sheets, particularly the ECB’s.

They can pretend that there are no write-offs or put it up in some organizations where you never see the losses. But we all know that if Greece repudiates its debts, there are going to be lots of losses on those bonds. We will see how it plays out.

Wednesday, August 12, 2015

I have always thought that the ECB (European Central Bank) would persist in coming up with some kind of solution, because they had just under $89 billion euros in the Greek banking system and we were theoretically only talking about lending another $7.2 billion to Greece to solve the problem.

But that has gone way up in the meantime, like most estimates that countries make on the size of their difficulties.

When I look at the proposals, it just is a total wipeout for Greece. For the love of me, I can’t understand why their parliament would pass that.

I mean, the ECB is seizing $50 billion in assets. It almost looks like they want to run the banking system in the country, if not effectively run the country itself! All the reporting mechanisms go to the ECB.

I can’t believe that Tsipras would have won the “no” vote (against the bailout) and then had that happen to him.

I have always believed that Greece would have been better off just reneging on the debt because there’s no way in the world that the ECB can honestly expect to be paid back.

So we will see what happens in the Greek parliament. But I think Greece would be better with an exit and debt repudiation. With what they theoretically agreed to, it is going to be very, very difficult for the Greeks and the country to survive in that environment.

So we will see how that plays out as events unfold. Even other governments within the ECB might reject it. So there are still a lot of acts to be played.